Six years later, the Dow is back

The market has also avoided "irrational exuberance," as former Fed Chairman Alan Greenspan termed the go-go 1990s. One key indicator is the price-to-earnings ratio: A lower ratio signals a more conservative investment outlook. Mr. Chalupnik says the market is currently selling at a price-to-earnings ratio of about 16 times earnings, compared with a more typical 18 times earnings. "If we go back to 17 times earnings for the Standard & Poor's or the Dow, prices would be about 6 to 7 percent higher than today," says Chalupnik. "That gives you a normal market return."

However, other analysts point out that the dynamics facing the economy are also starting to change. The Federal Reserve has raised interest rates 15 consecutive times. Next week, it is expected to hike rates another quarter of a percent.

"The engine for the recovery was cheap money, which fueled housing, which fueled borrowing, which fueled home equity and allowed people to take the cash out in home-equity loans for goods and services," says Jim Svinth, chief economist at LendingTree.com, an online mortgage lender based in Irvine, Calif. "There is always a lag in monetary policy in getting back to the consumer, and it will probably take six to 18 months for this to work its way through."

Others worry that the Fed may not be done raising rates. Ben Bernanke, the new Fed chairman, has indicated that the Fed may pause after it probably raises rates next week. But he hasn't ruled out raising them again in the future. "Factor in that the Fed may not be done, higher-than-expected energy prices, and a consumer who is stretched, and it does give us cause for concern," says J. Michael Barron, CEO of Knott Capital in Exton, Pa.

The market is trying to "sort through a lot of data" to determine the shape of the economy in the future, says Mr. Barron. "If the Fed has to cut interest rates next year, it will mean economic growth is slowing, and the question for stock investors is what does that mean for future earnings streams," he says.

Some market watchers point out that stocks have been rising in the face of the Fed ratcheting up short-term interest rates for some time. At least over the near term, that will continue, they believe. "We're bullish on the market over the short term. The economy is good, inflation is low, and earnings growth is terrific," says Chalupnik. But he adds, "What has changed is that long-term interest rates have started to move up, and that should start to affect economic growth. We are concerned that the expectations for the market for the second half of the year are too high."

But other stock-market players maintain that interest-rate movements are irrelevant for long-term investors. "Corporations worry about China, inflation, interest rates. They sell off parts of a company if they're not making any sense," says Jim Cullen of Schafer Cullen Capital Management in New York. His firm is known for "value" investing - that is, finding companies that the market may have overlooked. "As an investor, you just to make sure the corporate managers are halfway on the ball."

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